SPECIAL EDITION: “Brexit Plus Plus Plus”
- Banks led a huge rally yesterday… and gird for disaster today
- “MR. BREXIT” counts on another shock to the system
- Nate Silver jumps the shark: The end of “predictive analytics”…
- … and a much better system to suss out probabilitie
- Why did the small-business lobby bury its most recent survey?
- Recreational weed and the tax-revenue pitch
- After a complaint, and our reply, we get more feedback
[Urgent program note: Today’s episode of The 5 comes to you early. U.S. markets close as usual at 4:00 p.m. EST. The first voting polls close in Indiana and Kentucky two hours later.
Futures markets and electronic trading platforms will likely start going berserk as the evening goes on and hedge funds trade on the results of exit polls they’ve already commissioned. As noted below, Citigroup expects the stock market to tumble as much as 5% in the event of a shock Trump victory.
Which is what Jim Rickards is still expecting. He’s recommended two trades that stand to gain big if that’s the outcome… and he believes they’ll still perform respectably if Clinton wins. Read on for details. Or if you’re impatient and want to cut to the chase, click here for Jim’s urgent presentation. For maximum profit potential, you’ll want to act before 4:00 p.m. EST.]
The biggest banks were among the biggest winners in yesterday’s monster stock market rally. But today they’re gearing up for a Brexit-style meltdown.
Financial stocks led the major U.S. indexes to their best day since March — the relief rally we noted yesterday after the FBI dropped its investigation into Hillary Clinton’s private email server for a second time.
JPMorgan Chase, up 3.1%… Goldman Sachs, up 3.2%… Citi, up 3.4%… Morgan Stanley… up 3.7%.
The banks know Mrs. Clinton has their back. She said so during one of her speeches to Goldman Sachs whose transcripts we learned about only through WikiLeaks. On the subject of regulations, she said that in order to “figure out what works,” the “people that know the industry better than anybody are the people who work in the industry.”
And yet… “Big global banks, including Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc., are bracing for potential tumult on financial markets after Tuesday’s U.S. election,” says Reuters.
Gee, do they know something?
Banks with a big presence in Asia, like HSBC and Nomura, are putting extra staff on duty; the markets will open in Asia as the first results come in tonight.
“Bank preparations ahead of the election reflect their experience following Britain’s shock vote to leave the European Union in June, when the S&P 500 fell 3.6% the day after the poll.”
We remember it well: On the day of the vote, we cited Mervyn Davies, former chairman of the British banking giant Standard Chartered: “Everyone’s fearing a 2008 freeze of the wholesale markets.” The Financial Times described lines forming outside foreign-exchange dealerships and banks conducting “a final round of war games to stress-test systems.”
The parallels to Brexit — in which voters poked a finger in the eye of the establishment — are not lost on Donald Trump. He’s been playing it up for months…
On the final day of campaigning yesterday, he told a crowd in North Carolina the outcome today is “gonna be Brexit plus” — a line he used the day before in Pennsylvania.
Just what would be the market impact? Recalling that Brexit sent the S&P 500 tumbling 3.6% the following day… Citi says a Trump victory would send the S&P down 3–5%, albeit not necessarily in just one day.
Jim Rickards says the shock would be even bigger: “Our estimate is that major stock indexes will drop 10% on news of a Trump victory.” And gold could rally as much as $100. Will you be positioned for gains of up to 300%?
Win or lose, Donald Trump has killed off the faux “science” of predictive analytics.
Remember Nate Silver? He burst onto the scene with his FiveThirtyEight website in 2008. He correctly forecast Barack Obama would edge Hillary Clinton for the Democrats’ nomination. In the general election between Obama and John McCain, he correctly called the winner in 49 states.
In the 2012 Obama-Romney contest, he called all 50 states correctly — including every one of the nine “swing states.”
People swooned: “How does he do it?” enthused Irving Wladawsky-Berger, a former IBM executive, in The Wall Street Journal. “The answer, I believe, is that Nate Silver brings a scientific point of view to the Wild West world of forecasting political elections.”
Silver himself added to the “Ooh! Science!” mystique in a book he wrote called The Signal and the Noise: Why So Many Predictions Fail — but Some Don’t. In the course of analyzing the endless quantities of data available today, he wrote, “the numbers have no way of speaking for themselves. We speak for them. We imbue them with meaning… Before we demand more of our data, we need to demand more of ourselves.”
Truer words were never spoken: In the 2016 election cycle, Silver suffered what the spiritual writer Marcus T. Anthony calls an “ego fall.”
Wrote Silver in July 2015: “Trump has taken trolling to the next level by being willing to offend members of his own party… In the long run — as our experience with past trolls shows — Trump’s support will probably fade.” By November, he said even a 20% probability of a Trump victory in the primaries was “substantially too high.”
Once Trump wrapped up the Republican nomination, in May of this year, Silver engaged in a bit of introspection: “Our early estimates of Trump’s chances weren’t based on a statistical model,” he averred. “Instead, they were what we [call] ‘subjective odds’ — which is to say, educated guesses. In other words, we were basically acting like pundits, but attaching numbers to our estimates. And we succumbed to some of the same biases that pundits often suffer, such as not changing our minds quickly enough in the face of new evidence.”
Translation: “The possibility Trump would catch fire was so offensive to my elite sensibilities that I wouldn’t even entertain it.”
If Silver hadn’t jumped the shark before, he did this weekend when Huffington Post writer Ryan Grim accused him of “changing the results of polls to fit where he thinks the polls truly are, rather than simply entering the poll numbers into his model and crunching them.”
That’s basically true, although Silver took exception to Grim’s choice of words… and he went on a foul-mouthed 14-part tweet storm. We’ll spare you the excruciating details. You’re welcome.
Last night, after calming down, Silver gave Trump a 30% chance of winning the election. The night before, he described “a tight race in which turnout and late-deciding voters will determine the difference between a clear Clinton win, a narrow Clinton win and Trump finding his way to 270 electoral votes.”
Really? “Turnout and late-deciding voters”? No manure, Sherlock. For crying out loud, I could have said the same thing without benefit of analyzing 14 national polls nine ways to Sunday and “imbuing them with meaning.”
But don’t forget — it’s science!
Maybe we’re being too hard on Mr. Silver. Maybe people expect too much of the guy — especially the poor saps whose lives revolve around refreshing FiveThirtyEight every few minutes in the run-up to Election Day. (They do exist.) People are looking for certainty when the best you can expect are probabilities.
Probabilities are Jim Rickards’ stock in trade: It’s how he identified a hugely successful trading opportunity with Brexit.
“Since actual odds were 50/50 and the market was priced for 75/25, we recommended shorting the pound, buying gold and other trades that would benefit from ‘Leave.’ That way, we would not lose much if ‘Remain’ won, but we would make huge profits if ‘Leave’ won.
“That’s exactly what happened.”
It was a textbook “Kissinger Cross” trade. You assess the available information. You also assess the available time in which to act. If you act too soon, you stand to incur losses. But if you wait for 100% certainty, you’ll miss out on the opportunity. You need to hit the “sweet spot.” Late last year, we graphically represented this sweet spot like so…
And here’s what it looked like in action. The top chart is FXB — an ETF keyed to the British pound. The bottom chart is Jim’s proprietary Kissinger Cross indicator, applied to FXB:
The sweet spot — a 60% probability of a correct thesis — came in early June. The sweet spot was crossed again the day after the referendum with the pound’s collapse. Different readers got different results depending on when they bought. Many who acted 72 hours before the vote ended up with a 129% gain.
But again, we emphasize the trade would have likely been profitable — just not as much — even if the vote went the other way. It’s the “heads you win, tails you don’t lose” scenario Jim described yesterday… and it applies to his Trump trade now.
For maximum profit potential, you want to act before the market closes today at 4:00 p.m. EST. Check out Jim’s forecast right now while there’s still time. We mean it. You can always come back to the rest of today’s episode later…
In the meantime, markets are in suspended animation today. As we write, the major U.S. stock indexes are down about a quarter percent. Gold is up a couple bucks at $1,283.
Small-business owners are feeling marginally better about the future going into the election.
The monthly Optimism Index from the National Federation of Independent Business clocks in this morning at 94.9. That’s up from 94.1 a month ago, and the best reading in a year. But it’s still mediocre by long-term standards, and the index has a history going back four decades.
The “single most important problem” part of the survey finds taxes and regulations tied for first place — both cited by 21% of respondents.
[For whatever it’s worth: This month’s report was buried on the NFIB’s website. I couldn’t find it anywhere on the homepage and I had to resort to Google. It’s as if they’re embarrassed by a one-month bump in the number right before the election, when conventional wisdom points to a Clinton victory. C’mon, guys…]
With recreational marijuana on the ballot in five states, including California, today, supporters “are all using the same sales pitch to sell their cause,” says the business website Quartz this morning.
That’s the benefit to the state treasury: “Maine: ‘Tax dollars for schools & police’; Massachusetts: ‘Tax and regulate’; Nevada: ‘Jobs, jobs, jobs.’”
Hey, the facts are on their side: A few days ago, the Marijuana Policy Group issued a study on legal pot in Colorado. It finds the change led to 18,000 full-time jobs and added $2.4 billion to the Centennial State’s GDP last year. “Excise and sales taxes alone brought in $121.5 million,” says Quartz; “much of the remaining increase in revenue was driven, essentially, by weed tourism.”
As we’ve been saying for weeks, California is the big prize — simply because it comprises one-eighth of the U.S. population and would be the world’s sixth-largest economy if it were a country. Every poll points to passage by a comfortable margin. If you want to know which “penny pot stocks” have the greatest potential in light of the likely results, Ray Blanco’s research is still available here.
“Your reply is well thought out and quite reasonable,” a reader writes after another reader carped here yesterday about our sales pitches. “However, I don’t care to subscribe to one ‘premium service’ while the other one from the same writer is losing me money.
“I’d accept that the junior gold miners are a long-term play except that the email that got me into this mess in the first place was so forcefully marked ‘urgent! crisis!’ In retrospect, while a lot of work has clearly gone into the selection, now would have been a much better — about 30% in total — time to get in than three months ago.
“And as long as the initial service is still losing money, no, I will not extend, buy a lifetime subscription nor subscribe to everything from the same author. It is time for him to prove his worth, and thus far, his advice is a loser.
“Filling my mailbox with multiple daily solicitations isn’t appreciated, either. Yes, I saw this most recent urgent notice and deleted it. Maybe the last would have panned out, but I responded to one urgent solicitation with no refund possible, and you don’t get another cent until this one becomes profitable.
“Yes, maybe tomorrow or Wednesday. In the meantime, cut out the deluge, OK?”
The 5: Fair enough. Please understand, however, that Rickards’ Gold Speculator is not a market-timing service. Jim believes gold is on a “march” to $10,000 — not a sprint. There will be ups and downs along the way.
“I have come to realize that over the years people just want to complain and blame someone else,” writes another reader, chiming in on the same topic.
“I have been a paid-up member in several services that I use to further educate myself and have an opportunity to make money in the meantime. I have not set the world on fire with my investments, but I have made several times my subscription fees and am in a position to benefit substantially on others. I also have become much more understanding of what goes on in our complicated financial lives.
“My hat is off to all of you who provide all this information for us to absorb and make our own final decision. It has been worth much more than the several thousand dollars I have spent. It has given me motivation to learn and to get my money’s worth and to have a chance to benefit substantially. I don’t follow all recommendations or subscribe to all services — only those I feel comfortable with. That is the point, isn’t it — to make the information available? I read about my other options and pass on those I don’t want.
“Thanks again for making this possible for me to secure my family’s future. Keep up the good work.”
The 5: Thank you for the kind words…
The 5 Min. Forecast
P.S. We’ll send along an update later this evening as early election results roll in. But if you want to maximize the profit potential of Jim Rickards’ “Trump trade,” now’s the time to act.